Role of Internal Auditors in the Anti-Corruption
John FlahertyThe Challengeh
Bribery, and other illicit payments are contrary to the public good. They thwart the competitive process and circumvent laws, regulations, and procedures put in place for the public good. They divert funds from owners, shareholders, and are usually paid as fees, commissions, or are paid without record. The cost to the public totals millions of dollars annually. The US Government is aware of almost 100 cases in which foreign bribes undercut the ability of US firms to win contracts valued at $45 billion in the 12 months before May 1995. "Corruption occurs when someone has monopoly power over a good or a ...view middle of the document...
The level of corruption in international business transactions continues to be a critical problem. Companies need both the motivation and the governance practices to discontinue these payments. An effective internal audit function is a major weapon in a company's battle against corruption. Measuring corruption trends is a daunting task but I believe we all can agree that the current level of corruption around the world is totally unacceptable. We are here in Lima because of our concern about corruption and our interest in reducing it. The focus for reduction is shifting from the recipients to the companies paying the bribes. This is the area of corruption where auditors can have the best opportunity of prevention, detection, and prosecution. One Effective Change - Legislation
Companies will stop paying bribes when the risk to the management or the company itself is greater than the perceived benefit to be gained from the bribe. In many cases, the payment will be a business decision not a moral one. U.S. companies' motivation to pay bribes changed dramatically with the passage of the Foreign Corrupt Practices Act (FCPA) in 1977. The strong criminal sanctions of the FCPA usually prevailed over the perceived benefit from the bribe. A recent study of 18 countries by Professor Johann Lambsdorff and sponsored by Transparency International concludes that U.S. companies are least likely to pay bribes while companies from Belgium, France, and Italy are most likely to pay bribes. The U.S. does not hold the high moral ground here. The obvious conclusion is that strong laws like the FCPA vigorously enforced, will significantly reduce payment of bribes. The 29 members of The Organisation for Economic Co-operation and Development (OECD) are committed to developing a treaty that would make it illegal for companies from member countries to bribe foreign officials and end the tax deductibility for foreign bribes. The proposed laws would have to be adopted by each member country with laws that criminalize bribery abroad. If and when this happens, and if enforcement is vigorous, then OECD countries will have the same motivation as U.S. companies. Other international anti-corruption initiatives include: * Inter-American Convention against Corruption was signed in 1996, but not yet ratified. It provides for ciminalization of bribery and various domestic reforms. * World Trade Organisation agreed in December 1996 to study proposals to increase transparency in government procurement. * World Bank tightened guidelines for public procurement contracts. They included provisions for sanctions on borrower countries and companies which engage in corrupt practices. * International Chamber of Commerce approved in 1996 a strengthened Code of conduct on illicit payments. Response of the Organisation to Unacceptable Risk - Motivating Change
Motivation is the first key step but it must be followed by strengthened corporate governance and a change in corporate...